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Reverse Section 704(c) Layers: Partnership Revaluation Events

A live 110-minute CPE webinar with interactive Q&A

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Tuesday, October 22, 2024

1:00pm-2:50pm EDT, 10:00am-11:50am PDT

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This webinar will examine common events triggering partnership revaluations and discuss how to maintain and report Section 704(c) layers. Our panel of partnership transaction experts will walk practitioners through common scenarios requiring book-ups and book-downs and offer advice on facilitating tracking each partners' share of Section 704(c).

Description

In general, IRC Section 704(c) layers can be created in two different contexts. First, a "forward" layer is created when built-in gain (or built-in loss) property is contributed to a partnership. A "reverse" layer is generally made in advance of a change in the economic arrangement between new or existing partners to memorialize the built-in gain or loss amongst the existing partners. These reverse layers ensure that partners do not inappropriately shift gain or loss allocations that economically belong to the historical partners.

The complexity of these calculations cannot be understated. Each revaluation event creates a separate layer and amount of built-in gain or loss that is allocated to specific partnership properties. These so-called book-ups are not mandatory but allow partners to recognize the built-in gain or loss over time. The tax regulations require partnerships to employ a reasonable method for these Section 704(c) allocations, including traditional, traditional with curative allocations, or the remedial method. The method chosen can have a material impact on how partners share in taxable income/loss and the partnership is permitted to utilize different methods for each layer. Tax practitioners working with partnerships need to understand the practical impacts of IRC Section 704(c) that occur as a result of revaluing the Section 704(b) capital accounts.

Listen as our panel examines common events triggering partnership revaluations and discuss how to maintain and report Section 704(c) layers. Our panel of partnership transaction experts will walk practitioners through common scenarios requiring book-ups and book-downs and offer advice on facilitating tracking each partners' share of Section 704(c).

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Outline

  1. Section 704: a primer
  2. Reverse 704(c) revaluations
  3. Reasonable allocation methods
    1. Traditional
    2. Curative
    3. Remedial
    4. Anti-abuse rules
  4. Introduction to handling layers
  5. Small disparities
  6. Sale of partnership with revaluations
  7. Examples

Benefits

The panel will review these and other critical issues:

  • Differences between traditional, traditional with curative, and remedial allocation methods
  • When a partnership should choose to revalue partnership property under the Section 704(b) regulations
  • An introduction to handling multiple layers of built-in gain (or built-in loss)
  • Common scenarios involving reverse Section 704(c) allocations

Faculty

Behnke, Blake
Blake Behnke
Managing Director
KPMG

Mr. Behnke is a Senior Manager in KPMG's Mergers and Acquisitions Practice. As a member of the Partnership...  |  Read More

Desalvo, Phillip
Phillip W. Desalvo
Principal
KPMG

Mr. Desalvo is a Principal in KPMG’s National M&A Tax practice and is based in the firm’s Chicago...  |  Read More

Jarrell, Chelsey
Chelsey Jarrell
Senior Manager
KPMG

Ms. Jarrell is a M&A Tax Senior Manager at KPMG US.

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